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A CPL communicates to the policyholder the insurer's position regarding coverage for the claims at hand. A CPL is often the first and possibly most crucial communication that the insurer sends or the policyholder receives. At the time the CPL is written, facts are few, and knowledge is incomplete. A CPL should timely and fully disclose to the policyholder the insurer’s coverage defenses. If the insurer is denying coverage or providing a defense while seeking a declaratory judgment that no coverage exists, the letter must state that.
A well drafted CPL can help establish that the carrier has acted in good faith and help the carrier maintain control of the defense. An insufficient CPL can waive defenses, invite extra-contractual damages, or waive the attorney-client privilege. An effective CPL, especially an ROR letter, must do more than recite facts and list verbatim policy provisions. The letter must connect the specific facts to support the potential lack of coverage in plain English. Failure to do so will waive coverage defenses.
If the letter does not meet specific standards, it jeopardizes the insurer's right to reimbursement of defense costs, even if it later prevails on the coverage issue. Counsel must raise certain matters, including potential conflicts of interest, control of the defense, and the impact of an ROR on defenses that are not explicitly waived.
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